21% duty imposed on import of power gear; demerger of VSNL land & SAIL divestment okayed

NEW DELHI: The government has imposed a duty of 21% on imported power equipment, helping domestic manufacturers to withstand competition from Chinese rivals, but power producers said the move would raise costs and lead to higher tariffs.

"The Union Cabinet has approved imposing 5% basic, 12% countervailing and 4% special additional duty on imported power equipment," a cabinet minister told ET after a meeting of the Cabinet.

In May, the Cabinet had deferred the decision on imposition of duty on power equipment. The duty will not affect existing import contracts, the minister said. Until now, customs duty was levied only on equipment imported for projects of capacity of less than 1,000 mw.

L&T Power president Ravi Uppal said it's a step in the right direction, but there is need for more measures. "They could have just introduced 5% basic duty and 4% special additional duty on imported power equipment. But this 12% countervailing duty will raise even our costs," he said.

Power generating companies expressed disappointment at the decision. Association of Power Producers, representing 24 power generating companies, said the move would raise equipment prices and raise electricity tariffs.

"It will have an adverse impact on retail tariffs. It is inconsistency on government's part as on one hand they are bailing out distribution companies and on the other hand raising tariffs," APP director general Ashok Khurana said.

He said there has been an implicit duty of more than 28% on equipment and machinery imports over the past two years due to rupee depreciation against the 14% duty recommended by a committee headed by Arun Maira, member of Planning Commission. The rate and structure of duty was a bone of contention among various departments of government.

Over 30% of the equipment ordered in the last five years was imported from China and Korea, impacting sales of Indian power-equipment makers led by state-run Bharat Heavy Electricals Ltd, Larsen & Toubro.

Demerger of VSNL's surplus land

The Cabinet also approved demerger of the surplus land held by Tata Communications (formerly VSNL) into a separate company, taking the first major step to resolve this issue a decade after the Tatas bought the long-distance communications company.

Last year, the Tatas had told the government that the sale of the surplus land could fetch revenues worth Rs 6,156 crore. The Tatas said the estimated value of 770 acres was based on prevailing government rates and added that its estimate also took into account that the land could not be used for residential purposes. The land is spread across five locations in Delhi, Kolkata, Chennai and Pune.

FCRA Amendment deferred

The Cabinet deferred the Forward Contract Regulation Act (Amendment) bill that would have empowered the commodity markets regulator and facilitated more products and institutional investors in the market. The decision was taken due to opposition from UPA constituent Trinamool Congress.